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By Bloomberg

German business confidence rose for a third month as falling energy costs and anticipation of more European Central Bank stimulus helped lift optimism about an economic recovery.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, advanced to 106.7 in January from 105.5 in December. The median estimate of 38 economists in a Bloomberg News survey was for an increase to 106.5.

Germany, Europe’s largest economy, should benefit from plunging oil prices that free up more disposable income in a country where unemployment is already at a record low. In addition, exporters stand to gain from a slide in the euro that’s bound to extend after the ECB announced massive monetary stimulus for the single-currency area last week.

“Lower oil prices are conducive for the euro-area economy, and therefore also for Germany,” said Evelyn Herrmann, an economist at BNP Paribas SA in London. “Indicators suggest momentum will pick up, putting Germany ahead of the currency region once again.”

A gauge of expectations rose to 102 in January from 101.3, while the assessment of current conditions improved to 111.7 from 109.8, Ifo said.

The euro was little changed after the report and traded at $1.1231 at 10:04 a.m. Frankfurt time. The benchmark DAX Index was up 0.2 percent at 10,674.

Faster Recovery

The Bundesbank said in its monthly bulletin on Jan. 19 that the German economy “seems to have overcome the weak phase of early last year faster than many expected.” The Federal Statistics Office predicts the economy grew a quarter of a percent in the October-December period after effectively stagnating in the middle of 2014. Purchasing managers’ indexes last week showed growth picking up momentum.

Even so, the German central bank said it must reduce its inflation forecasts “significantly” because of the drop in oil prices. The inflation rate probably turned negative this month for the first time in more than five years, according to a separate Bloomberg survey before data due on Jan. 29.

Consumer prices are already falling in the euro area, leading to concern among ECB policy makers that the region could be tipped into a deflationary spiral. President Mario Draghi said that prompted last week’s decision to start a bond-buying program worth at least 1.14 trillion euros ($1.28 trillion) over the next 1 1/2 years. The euro fell to the weakest level against the dollar since 2003.